Advantages of Aggressive Mutual Funds
1. Diversification : Debt and equities are two categories of assets that are included in the portfolio of aggressive funds. High-risk, high-reward as well as low risk, low reward asset categories are also included. These plans therefore provide diversity. Debt securities can protect investors’ portfolio value during a correction, even when the equity component might yield huge returns.
2. Tax Benefits : An aggressive mutual fund will invest up to 35% of its assets in debt instruments and at least 65% in equities. Since a significant portion of their portfolio is made up of assets that provide fixed income, they are still eligible to benefit from equity taxation under current tax legislation.
3. Less Volatile than Pure Equity Funds: When the underlying securities’ prices fluctuate, fluctuating market circumstances have an impact on the performance of pure equity funds. However, aggressive funds are less affected by market volatility because they also allocate up to 35% of their assets to debt instruments.
4. Portfolio Rebalancing: Due to SEBI guidelines, aggressive mutual funds have strict asset allocation policies. Fund managers have the ability to adjust the fund’s portfolio based on fluctuations in the market. They can raise their debt instrument investments to hedge risk in a bad market while maintaining the allocation percentage within the predetermined range. In contrast, fund managers might boost stock investments in a bull market in order to optimise profits.